Leases

12 Months Ended

Sep. 30, 2024

The Company’s lease portfolio consists of operating real estate leases for its corporate offices and, to a lesser extent, storage and other equipment. Under FASB ASC Topic 842, Leases (“ASC 842”), a contract is or contains a lease when (1) an explicitly or implicitly identified asset has been deployed in the contract and (2) the customer obtains substantially all of the economic benefits from the use of that underlying asset and directs how and for what purpose the asset is used during the term of the contract. The Company determines if an arrangement is or contains a lease at inception of the contract. For all leases (finance and operating), other than those that qualify for the short-term recognition exemption, the Company will recognize on the balance sheet a lease liability for its obligation to make lease payments arising from the lease and a corresponding right-of-use (“ROU”) asset representing its right to use the underlying asset over the period of use based on the present value of lease payments over the lease term as of the lease commencement date. ROU assets are adjusted for initial direct costs, lease payments made and incentives. As the rates implicit in our leases are not readily determinable, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments. This rate is based on the estimated rate of interest for collateralized borrowing over a similar term of the lease payments. The lease term used to calculate the lease liability will include options to extend or terminate the lease when the option to extend or terminate is at the Company’s discretion and it is reasonably certain that the Company will exercise the option. Fixed payments are recognized as lease expense on a straight-line basis over the lease term. For leases with a term of one year or less, the lease payments are recognized in the consolidated statements of operations on a straight-line basis over the lease term.

ASC 842 requires that only limited types of variable payments be included in the determination of lease payments, which affects lease classification and measurement. Variable lease costs, if any, are recognized as incurred and such costs are excluded from lease balances recorded on the consolidated balance sheet. The initial measurement of the lease liability and ROU asset are determined based on fixed lease payments. Lease payments that depend on an index or a rate (such as the Consumer Price Index or a market interest rate) are variable and are recognized in the period in which the payments are incurred.

The Company’s operating ROU assets are included in operating lease right-of-use assets and the Company’s current and non-current operating lease liabilities are included in operating lease liabilities, current and operating lease liabilities, noncurrent, respectively, in the Company’s balance sheet.

Operating lease liabilities are amortized using the effective interest method. That is, in each period, the liability will be increased to reflect the interest that is accrued on the related liability by using the appropriate discount rate and decreased by the lease payments made during the period. The subsequent measurement of the ROU asset is linked to the amount recognized as the lease liability. Accordingly, the ROU asset is measured as the lease liability adjusted by (1) accrued or prepaid rents (i.e., the aggregate difference between the cash payment and straight-line lease cost), (2) remaining unamortized initial direct costs and lease incentives, and (3) impairments of the ROU asset. Operating lease costs are included in Selling, general and administrative expenses.

For lease agreements that contain both lease and non-lease components, the Company has elected the practical expedient provided by ASC 842 that permits the accounting for these components as a single lease component (rather than separating the lease from the non-lease components and accounting for the components individually).

The Company enters into operating leases for buildings, office equipment, production equipment, warehouses, and other types of equipment. Our leases have remaining lease terms of 1 year to 19 years, some of which include options to extend the leases for up to 10 years, and some of which include options to terminate the leases within 1 year.

Among the Company’s operating leases are its leases for the Ford Factory Building, located at 777 S. Santa Fe Avenue in Los Angeles, California, and for 27 Wrights Lane, Kensington, London, United Kingdom. The landlord for both leases is an affiliate of Access. As of September 30, 2024 and September 30, 2023, the aggregate lease liability related to these leases was $99 million and $110 million, respectively. See also Note 15, Related Party Transactions.

There are no restrictions or covenants, such as those relating to dividends or incurring additional financial obligations, relating to our lease portfolio, and residual value guarantees are not significant.

The components of lease expense were as follows:


	Fiscal Year Ended September 30,
	2024		2023
	(in millions)
Lease Cost
Operating lease cost	$	53	$	52
Short-term lease cost	—		—
Variable lease cost	12		13

Total lease cost	$	65	$	65

The Company incurred and recorded other occupancy expenses of $26 million and $25 million for the fiscal years ended September 30, 2024 and 2023, respectively.

Supplemental cash flow information related to leases was as follows:


	Fiscal Year Ended September 30,
	2024		2023
	(in millions)
Cash paid for amounts included in the measurement of operating lease liabilities	$	59	$	56
Right-of-use assets obtained in exchange for operating lease obligations	18		77

Supplemental balance sheet information related to leases was as follows:


	September 30, 2024			September 30, 2023
	(in millions)
Operating Leases
Operating lease right-of-use assets	$	225		$	245

Operating lease liabilities, current	$	45		$	41
Operating lease liabilities, noncurrent	228			255
Total operating lease liabilities	$	273		$	296

Weighted Average Remaining Lease Term
Operating leases	6 years			7 years
Weighted Average Discount Rate
Operating leases	5.56		%	5.55		%

Maturities of lease liabilities were as follows:


Fiscal Year Ended September 30,	Operating Leases
	(in millions)
2025	$	58
2026	55
2027	52
2028	51
2029	48
Thereafter	63
Total lease payments	327
Less: Imputed interest	(54)
Total	$	273

As of September 30, 2024, we have additional operating leases for facilities that have not yet commenced with total lease obligations of $7 million and a weighted average lease term of 5 years.